Samsung Changes Strategy to Halt Smartphone Side

05/23/2016

Samsung Electronics has undergone a painful process of breaking from its past to reverse a slide in its handset business by changing the way it chooses smartphone components to the models it brings to market.

By ultimately defying industry convention by opting for fewer pixels in exchange for improved autofocus features and low-light performance, a move that contributed to early success, the world's largest smartphone maker agonized over camera specs for its flagship Galaxy S7 until the last moment, for example.

An executive said that the company was enabled to streamline production by paring back its product line-up and overcoming internal resistance.

Though historically low smartphone industry growth still leaves Samsung looking for the "next big thing", these steps have resulted in the handset business now stabilizing and the company having its best profit in nearly two years in January-March.

"We've now gotten to a point where we can secure a baseline profit even if the market stagnates, so long as we don't make a bad mistake. I'm confident we can hold our ground," said Kim Gae-youn, vice president in charge of Samsung's smartphone product planning.

Samsung’s budget devices were overpriced and unappealing versus Chinese offerings and the 2014 version of its Galaxy S flopped which exposed the fact that Samsung was slow to adjust to the changing market after the company peaked in handset sale in 2013.

As rivals including Apple and China's Huawei Technologies and Xiaomi gained market share at its expense, the failures prompted a cull among executives and stoked investor worries Samsung might not be able to recover.

A shift from a phone-for-all-needs approach towards a line-up that emphasized economies of scale was the strategy that Samsung embarked two years ago.

The company gave high-end features such as organic light-emitting diode (OLED) screens and revamped design, using metal frames to its low- and mid-tier products.

There was much conjecture among the company executive over whether to use a 12-megapixel rear camera that shoots better in the dark and has improved auto focus, or stay with a 16-megapixel count as Samsung prepared to launch its Galaxy S7 phones this year. Ultimately at the last minute, in a rare step down in an industry fixated on higher numbers, they opted for 12-megapixels.

Kim said that the executives needed t be convinced and this was signified since for a company known to tout the highest specs for its flagship products, the measure meant a change in approach. Data showing consumers want more than just a high pixel count ultimately swayed the executives.

"In the past, based on our past decision-making process, we never would have gone back," Kim said in an interview at Samsung's headquarters campus in Suwon, south of Seoul.

According to Kantar US Insights, this move by Samsung was successful as compared with a third of all smartphone buyers in the first quarter, more than half of U.S. S7 buyers surveyed cited camera quality as a key selling point.

"I think they will try to imbue the Note (phone) with a more transformative change such as new technology under the new leadership, than the fine-tuning we saw with the Galaxy S7," said Kim Hyun-su, a fund manager with IBK Investment & Securities, which holds Samsung shares.

Samsung's operating profit is expected to be flat this year and grow just 3 percent next year, according to 43 analysts polled by Thomson Reuters I/B/E/S.